In the posting that follows, I discuss investment prospects. In haste, I omitted what was a key point.
One of the most important components of investment is investment in new housing. Needless to say, this is dead as a doornail and will be for a good number of years. It is yet another reason why the recovery will be weak or why a double dip is possible—still being predicted, in late 2010, though with greater tentativeness, by Dr Doom, Nuriel Roubini.
Thursday, September 24, 2009
Wednesday, September 23, 2009
Stiglitz and our Economic Prospects
On Wednesday, September 16, I went to a lecture by Joseph Stiglitz, who teaches at Columbia University. I hope readers have heard of him. He won the Nobel Prize in Economics not long ago, and what he did really deserves the Prize, unlike some of the other winners. He studied the fact that information is often asymmetrical. A can take advantage of B because A knows things that B does not. The economic explication of the advantages of perfect competition begins with the assumption of perfect knowledge (or it used to be so—I’m not always up to date.) By not only showing this is not true—not too difficult an assignment, he explores its implications, the principal one being we need government to intervene to obtain appropriate and beneficial solutions. Check it all out in Wikipedia.
Stiglitz is an Amherst graduate but the talk was held in the Williams Club, since there is no Amherst Club in NYC. However, the audience was limited to Amherst graduates (or current students).
[Amherst aside.] I sat near the front and the person next to me started to introduce himself—I was wearing a name tag, with year of graduation (’55), when I noticed next to him was someone from the class of 1955 I hadn’t seen since graduation (and someone I was not particularly close to even then). His name was Walt Marks and he has made his fame as a Broadway writer and lyricist. We had a very enjoyable talk, one in which I urged him to attend the reunion which is coming up next spring. He said he would consider it. I think I flattered him by referring to a song from our Freshman show, the words and lyrics he had written (“With an “A” Letter on My Black Sweater”) and the dramatic entrance of Bob Eckardt onto the stage, doing some kind of leg split, yelling out “tennis anyone?” Googling, his most recent show was Langston (Hughes) in Harlem and his wife’s most recent show was “Larry Flint: the Right to be Left Alone,” which she also wrote a column on, in the Huffington Post (Joan Brooker Marks).]
Stiglitz had just finished a project for President Nicolas Sarkozy, of France, as chairman of a project evaluating the value of GDP as a measure of well-being. Also appointed to the Committee was Economic Nobelist, Amartya Sen, who teaches at Harvard (as well as in the United Kingdom). [Actually, as I write, there is nearby today’s Business Section, Wednesday, September 23, and on the first page there is an article entitled “Emphasis on Growth Is Called Misguided,” which is about the Sarcozy-Stiglitz-Sen project, with Stiglitz’s picture on page 5.]
Given this reality—this major unfolding story about Sarcozy and the GDP—Stiglitz felt he should devote about a third of his talk to what this was all about. Simplifying, GDP, and its similar predecessor (GNP), measures output, but is it of much value measuring well-being? For example, there is no subtraction from GDP for the harm done to the environment. Or, using my own examples, if you smash your car while texting, the cost of fixing the car (not to speak of dealing with injury and death) should not be considered additions to our well-being. Nor, if an arson wave breaks out, should we count as improvements the extra fire trucks we make or the greater numbers of fire personnel we hire. One could go on and on.
When asked, Stiglitz did not believe that there was a single measure of well-being, but when pushed, he suggested as a possibility, median income—half above, half below. (By this measure, GDP shows little improvement in the economy from 2001 to 2007, since median income was more or less flat, but GDP had risen, the lion’s share taken by the upper income groups.
By how much is truly astonishing. Recently, I saw newly calculated figures on inequality. 1929 was considered to be a peak year for inequality. A recent study, by a Professor at Berkeley, Emmanuel Saez (winner of the prestigious John Bates Clark award, given every other year to that economist under 40 who has made a distinguished theoretical contribution, often (or perhaps usually) a prelude to a Nobel) showed that the top 1/100th of 1%, received 5 % of total income in 1929. In the 1970’s, income was not as unequal and the figures were just over 1%, but by 2007, the top one hundredth of one percent garnered 6% of total income. To me, this is simply astounding. (It will play a role in my discussion of consumption and the future of the economy.) Clearly, if such vast amounts of GDP is going to 15,000 families, the relation of GDP to well-being is clearly undermined, even if you could stop the texting and the arson.
On the general economy, Stiglitz was anything but upbeat, although he speaks well and without any condescension whatever. One commentator remarked that his range was from “negative to hopeless.” Unlike a few, he feels we are not yet out of the recession. He did not indicate when the end would come—but I suspect he might say, like so many others, later in the year (or possibly early in 2010), but whenever, he obviously expects a slow recovery. (More on this shortly.)
Almost everyone in the know understands that the official unemployment rate—currently 9.7% as I write—is a bad measure, not because it is inaccurate, but because it doesn’t include “discouraged workers,” those who have given up looking for a job because they think there aren’t any out there. (Often, these are older workers in their 50’s or perhaps 60’s.) In addition, uncounted in the 9.7% are workers who are working part time—tending bar one night, say—but who would like to be working full time or maybe they call themselves “consultants,” but basically are without clients. If unemployment were measured this way (and it is, but not publicized)—it is undoubtedly a better measure than the 9.7% measure, which simply asks if you are looking for a job and eliminates you if you are not or if you have a 5 hour job but would like to work full time. By this measure, the unemployment rate would be about 16 or 17%.
What Stiglitz also mentioned is that the 9.7% figure is understated because of the seasonal adjustment. Every year, in May and June, there are high school and college graduates (as well as non-graduates) who enter the labor force, but most only find jobs after a few months. Rather than having the U rate go up every May and June and then down every August and September, a seasonal adjustment is made, based on history. History might show that on average the 50% unemployment of these newcomers every June drops to 20% every September, so it seasonally adjusts (i.e., lowers the unemployment rate for June. But if history is not working the same, as surely it isn’t, and the drop in September is only to 30%, then the seasonal adjustment leads to an understatement of unemployment. While the amounts might not be staggering, Stiglitz’s argument might mean that the real unemployment is already over 10%, simply because the seasonal adjustment has led to an understatement.
So on to our prospects. Back when I took economics in 1953 with Paul Samuelson’s third edition, the GDP (then it was the GNP) was the sum of C (Consumption expenditures) + I (Investment) + G (Government expenditures) plus adding in what we produce but export and subtracting what we consume but is produced elsewhere and is imported. (Or after G, you add [+X (exports) –M (imports)].
The most important of these, at least numerically, is C, Consumption. Most are pessimistic about our consumption prospects. First, there are more unemployed than usual, whether by the lower measure or by the higher measure. More important, people can’t overspend their incomes as easily as they could in the past, by borrowing on the value of their houses or the value of their stock holdings—in both cases the values are down and in the case of housing the loaners are more reluctant. Even credit card use is more difficult—higher rates and more careful management by the credit card companies.
But even more important is the Great Depression effect. It hit so hard it made people cautious for decades. The Great Recession has had a similar effect, although clearly not as strong an effect. People are anxious and are cautious. One measure of this is the savings rate. This is calculated by taking total personal income after income taxes and looking to see how much of this is spent. Over most of the years since WWII, the savings rate was about 8%. (This is a complex mix. Many saved not at all. Others, especially, the very well-to-do, saved large parts of their multi-million dollar income. While there may be a few who made 5 million dollars who saved not a penny, most probably saved a million or two or even more.)
As we went forth in the ’90’s and 00’s, the saving rate dropped to zero. People were able to do this since they could borrow against the soaring value of their homes (the bubble). But now the savings rate is about 6%, reflecting in part, the Great Recession caution. And while this will in time fade, it will not likely fade within the next few years. Caution is in. Extravagance is out. Moreover, the inequality factor, alluded to previously, tends to reduce consumption. If 15,000 families make $12 million each, we’re going to end up with more saving than if incomes were more equally distributed. Whatever the value of saving, during recessionary times it is something we need less of.
Finally, there are uninformed pundits who pleadingly ask that those who save the 6% simply spend the money, for its positive economic impact. What they don’t realize is that the 6% is not lying under the mattress or sitting in some low-interest savings account. Most of it is simply not there! That’s because the money was used to pay off debts. You may ask: and you call that saving? Well, yes. You owed money and now you owe less. You are dis-saving less, as you pay off your debts. This is another way of saying you are saving more, even if the money is not in your wallet or under the bedspread.
Exports are harder to evaluate. It depends on the state of the world economy and the state of particular countries and our ability to export to them. China seems to be doing better, but in the end we don’t export that much to them. In fact, exports, in the end, could double and it’s doubtful their impact on our economy would be that great. It would help some, but I wouldn’t push it. Meanwhile, the two major exporters among the advanced capitalist economies are having up and down rough periods—Germany and Japan. In short, I simply don’t expect exports to pull us out of the recessionary quagmire.
Investment is a different kettle of fish. First, no one ever knows in advance when it will be the pacemaker. But the continued weakness in the banking area makes it unlikely that investment can be the source of significant future strength. (More on this in a moment.)
Government could be the key. To some extent, in its bail-outs of the banks and its stimulus (along with the money created by the Federal Reserve) government—Republican bitching not withstanding—is what has kept us from falling even further into the depressionary morass. Had Obama not played the bipartisan game, but gone to the public with a $1.4 billion stimulus, we probably would have ended up with about $1.2 billion in stimulus, 50% more than we actually ended up with, with a much stronger economy, especially as most of this would have been appropriate for countering a recession—tax cuts for the poor, more aid to the unemployed, more directed aid (or loans)to states to hire teachers, librarians, police, and health and fire workers. Admittedly, water over the dam, but pressure must be exerted on Obama to mend his bipartisan ways or suffer a horrendous defeat.
Virtually, no one believes that a second stimulus—a booster—is possible at this point—neither Stiglitz nor Krugman do (the liberal alternatives to Summers and Geithner, both of whom were invited to dine at the White House, to what benefit it’s hard to evaluate, since both were sworn to secrecy). Perhaps, if the economy continues to slug along in 2010, a second stimulus might be possible. I think the consensus is that slug along is what we are going to get, with a second stumulus doubtful and therefore we may be in for disastrous political results.
Stiglitz was asked about manufacturing, which year by year is declining as a percentage of the GDP. To me, he was surprisingly optimistic. At some point—2012? (who knows when?)—he thought it might pick up. But why? To the extent, education is needed, it seems we’re in the soup, since every indicator on education is a bummer. But perhaps education is not needed, just smarts. Then we have another problem. What is to keep the manufacturer from moving the production to a site where labor costs are 10% of what he is paying here? Or a variant: what is to prevent Chinese entrepreneurs from copying what we do, maybe making a cosmetic change or two, then exporting to us what we had invented? I actually asked Stiglitz this but he deflected the question.
In short, therefore, I expect a long, slow recovery, perhaps one that will never reduce unemployment to the levels that existed in the late 1990’s. I also expect dangerous political reactions. We have them now and the fan has not really been hit yet. But there is still one more reason for pessimism.
There is yet another difficulty on the horizon and that is the money that debtors have collected, including the Chinese. It certainly is not in the interest of the Chinese to express their misgivings over tires or whatever new products the US decides to challenge them on by selling their dollars. Their losses would be astronomical. But things happen and panics occur. The dollar has fallen enormously since spring against the Euro. And it’s not doing well against the Yen.
At some point, the declining value of the dollar is going to be a big part of the deteriorating picture. The dollar might simply continue to fall slowly or panic might send it plummeting, like the 1987 crash of the stock market—about 23% in a single session. But one thing for sure, the dollar problem will not disappear. What it may do, however, is put Ben Bernanke,, chairman of the Federal Reserve, between a rock and a hard place. Rising prices because of a weakened dollar and, simultaneously, high levels of unemployment. This is a no win situation. Price controls could be an answer, but Nixon's needless and inappropriate use of them, make them currently unusuable.
Looking at the present as history, the last two or three centuries the first world dominated the third world. It did so by force and conquest. Imperialism was not just a Communist slogan—it was a capitalist reality. But in the late decades of the last century, things began to change, especially in China, its “Communist” dictatorship notwithstanding—the caps because the dictatorship is real but its Communist nature is not.
What I think we are experiencing is a reversal of history, so to speak. The 3rd World, or parts of it, is rising and this rise is at the expense of the 1st world. Just to get a small handle on it, look at the trade balance between the US and China—they export and we import (and they get our dollars)] To me, this suggests, that we are heading south (or downward). It will not be an overnight process, but it has already begun. Just look at our manufacturing. Our best chance to weather the storm is a slim one: We accept that our day in the sun is over and we adjust. We share the reduced production (and reduced goods that we will be able to buy) by having a shorter workweek.
We then have to make the seismic leap implicit in what Stiglitz has been writing about, and find a happiness in increased leisure that outweighs the loss of the value of the goods we are about to go without (or have a little less of). In an utterly sane world, this could happen, since more time to spend with friends and family is an obvious plus. But it will require changes we are not used to and worse, think we should not be obliged to adopt. If only we were less arrogant and more humble—if only!
Stiglitz is an Amherst graduate but the talk was held in the Williams Club, since there is no Amherst Club in NYC. However, the audience was limited to Amherst graduates (or current students).
[Amherst aside.] I sat near the front and the person next to me started to introduce himself—I was wearing a name tag, with year of graduation (’55), when I noticed next to him was someone from the class of 1955 I hadn’t seen since graduation (and someone I was not particularly close to even then). His name was Walt Marks and he has made his fame as a Broadway writer and lyricist. We had a very enjoyable talk, one in which I urged him to attend the reunion which is coming up next spring. He said he would consider it. I think I flattered him by referring to a song from our Freshman show, the words and lyrics he had written (“With an “A” Letter on My Black Sweater”) and the dramatic entrance of Bob Eckardt onto the stage, doing some kind of leg split, yelling out “tennis anyone?” Googling, his most recent show was Langston (Hughes) in Harlem and his wife’s most recent show was “Larry Flint: the Right to be Left Alone,” which she also wrote a column on, in the Huffington Post (Joan Brooker Marks).]
Stiglitz had just finished a project for President Nicolas Sarkozy, of France, as chairman of a project evaluating the value of GDP as a measure of well-being. Also appointed to the Committee was Economic Nobelist, Amartya Sen, who teaches at Harvard (as well as in the United Kingdom). [Actually, as I write, there is nearby today’s Business Section, Wednesday, September 23, and on the first page there is an article entitled “Emphasis on Growth Is Called Misguided,” which is about the Sarcozy-Stiglitz-Sen project, with Stiglitz’s picture on page 5.]
Given this reality—this major unfolding story about Sarcozy and the GDP—Stiglitz felt he should devote about a third of his talk to what this was all about. Simplifying, GDP, and its similar predecessor (GNP), measures output, but is it of much value measuring well-being? For example, there is no subtraction from GDP for the harm done to the environment. Or, using my own examples, if you smash your car while texting, the cost of fixing the car (not to speak of dealing with injury and death) should not be considered additions to our well-being. Nor, if an arson wave breaks out, should we count as improvements the extra fire trucks we make or the greater numbers of fire personnel we hire. One could go on and on.
When asked, Stiglitz did not believe that there was a single measure of well-being, but when pushed, he suggested as a possibility, median income—half above, half below. (By this measure, GDP shows little improvement in the economy from 2001 to 2007, since median income was more or less flat, but GDP had risen, the lion’s share taken by the upper income groups.
By how much is truly astonishing. Recently, I saw newly calculated figures on inequality. 1929 was considered to be a peak year for inequality. A recent study, by a Professor at Berkeley, Emmanuel Saez (winner of the prestigious John Bates Clark award, given every other year to that economist under 40 who has made a distinguished theoretical contribution, often (or perhaps usually) a prelude to a Nobel) showed that the top 1/100th of 1%, received 5 % of total income in 1929. In the 1970’s, income was not as unequal and the figures were just over 1%, but by 2007, the top one hundredth of one percent garnered 6% of total income. To me, this is simply astounding. (It will play a role in my discussion of consumption and the future of the economy.) Clearly, if such vast amounts of GDP is going to 15,000 families, the relation of GDP to well-being is clearly undermined, even if you could stop the texting and the arson.
On the general economy, Stiglitz was anything but upbeat, although he speaks well and without any condescension whatever. One commentator remarked that his range was from “negative to hopeless.” Unlike a few, he feels we are not yet out of the recession. He did not indicate when the end would come—but I suspect he might say, like so many others, later in the year (or possibly early in 2010), but whenever, he obviously expects a slow recovery. (More on this shortly.)
Almost everyone in the know understands that the official unemployment rate—currently 9.7% as I write—is a bad measure, not because it is inaccurate, but because it doesn’t include “discouraged workers,” those who have given up looking for a job because they think there aren’t any out there. (Often, these are older workers in their 50’s or perhaps 60’s.) In addition, uncounted in the 9.7% are workers who are working part time—tending bar one night, say—but who would like to be working full time or maybe they call themselves “consultants,” but basically are without clients. If unemployment were measured this way (and it is, but not publicized)—it is undoubtedly a better measure than the 9.7% measure, which simply asks if you are looking for a job and eliminates you if you are not or if you have a 5 hour job but would like to work full time. By this measure, the unemployment rate would be about 16 or 17%.
What Stiglitz also mentioned is that the 9.7% figure is understated because of the seasonal adjustment. Every year, in May and June, there are high school and college graduates (as well as non-graduates) who enter the labor force, but most only find jobs after a few months. Rather than having the U rate go up every May and June and then down every August and September, a seasonal adjustment is made, based on history. History might show that on average the 50% unemployment of these newcomers every June drops to 20% every September, so it seasonally adjusts (i.e., lowers the unemployment rate for June. But if history is not working the same, as surely it isn’t, and the drop in September is only to 30%, then the seasonal adjustment leads to an understatement of unemployment. While the amounts might not be staggering, Stiglitz’s argument might mean that the real unemployment is already over 10%, simply because the seasonal adjustment has led to an understatement.
So on to our prospects. Back when I took economics in 1953 with Paul Samuelson’s third edition, the GDP (then it was the GNP) was the sum of C (Consumption expenditures) + I (Investment) + G (Government expenditures) plus adding in what we produce but export and subtracting what we consume but is produced elsewhere and is imported. (Or after G, you add [+X (exports) –M (imports)].
The most important of these, at least numerically, is C, Consumption. Most are pessimistic about our consumption prospects. First, there are more unemployed than usual, whether by the lower measure or by the higher measure. More important, people can’t overspend their incomes as easily as they could in the past, by borrowing on the value of their houses or the value of their stock holdings—in both cases the values are down and in the case of housing the loaners are more reluctant. Even credit card use is more difficult—higher rates and more careful management by the credit card companies.
But even more important is the Great Depression effect. It hit so hard it made people cautious for decades. The Great Recession has had a similar effect, although clearly not as strong an effect. People are anxious and are cautious. One measure of this is the savings rate. This is calculated by taking total personal income after income taxes and looking to see how much of this is spent. Over most of the years since WWII, the savings rate was about 8%. (This is a complex mix. Many saved not at all. Others, especially, the very well-to-do, saved large parts of their multi-million dollar income. While there may be a few who made 5 million dollars who saved not a penny, most probably saved a million or two or even more.)
As we went forth in the ’90’s and 00’s, the saving rate dropped to zero. People were able to do this since they could borrow against the soaring value of their homes (the bubble). But now the savings rate is about 6%, reflecting in part, the Great Recession caution. And while this will in time fade, it will not likely fade within the next few years. Caution is in. Extravagance is out. Moreover, the inequality factor, alluded to previously, tends to reduce consumption. If 15,000 families make $12 million each, we’re going to end up with more saving than if incomes were more equally distributed. Whatever the value of saving, during recessionary times it is something we need less of.
Finally, there are uninformed pundits who pleadingly ask that those who save the 6% simply spend the money, for its positive economic impact. What they don’t realize is that the 6% is not lying under the mattress or sitting in some low-interest savings account. Most of it is simply not there! That’s because the money was used to pay off debts. You may ask: and you call that saving? Well, yes. You owed money and now you owe less. You are dis-saving less, as you pay off your debts. This is another way of saying you are saving more, even if the money is not in your wallet or under the bedspread.
Exports are harder to evaluate. It depends on the state of the world economy and the state of particular countries and our ability to export to them. China seems to be doing better, but in the end we don’t export that much to them. In fact, exports, in the end, could double and it’s doubtful their impact on our economy would be that great. It would help some, but I wouldn’t push it. Meanwhile, the two major exporters among the advanced capitalist economies are having up and down rough periods—Germany and Japan. In short, I simply don’t expect exports to pull us out of the recessionary quagmire.
Investment is a different kettle of fish. First, no one ever knows in advance when it will be the pacemaker. But the continued weakness in the banking area makes it unlikely that investment can be the source of significant future strength. (More on this in a moment.)
Government could be the key. To some extent, in its bail-outs of the banks and its stimulus (along with the money created by the Federal Reserve) government—Republican bitching not withstanding—is what has kept us from falling even further into the depressionary morass. Had Obama not played the bipartisan game, but gone to the public with a $1.4 billion stimulus, we probably would have ended up with about $1.2 billion in stimulus, 50% more than we actually ended up with, with a much stronger economy, especially as most of this would have been appropriate for countering a recession—tax cuts for the poor, more aid to the unemployed, more directed aid (or loans)to states to hire teachers, librarians, police, and health and fire workers. Admittedly, water over the dam, but pressure must be exerted on Obama to mend his bipartisan ways or suffer a horrendous defeat.
Virtually, no one believes that a second stimulus—a booster—is possible at this point—neither Stiglitz nor Krugman do (the liberal alternatives to Summers and Geithner, both of whom were invited to dine at the White House, to what benefit it’s hard to evaluate, since both were sworn to secrecy). Perhaps, if the economy continues to slug along in 2010, a second stimulus might be possible. I think the consensus is that slug along is what we are going to get, with a second stumulus doubtful and therefore we may be in for disastrous political results.
Stiglitz was asked about manufacturing, which year by year is declining as a percentage of the GDP. To me, he was surprisingly optimistic. At some point—2012? (who knows when?)—he thought it might pick up. But why? To the extent, education is needed, it seems we’re in the soup, since every indicator on education is a bummer. But perhaps education is not needed, just smarts. Then we have another problem. What is to keep the manufacturer from moving the production to a site where labor costs are 10% of what he is paying here? Or a variant: what is to prevent Chinese entrepreneurs from copying what we do, maybe making a cosmetic change or two, then exporting to us what we had invented? I actually asked Stiglitz this but he deflected the question.
In short, therefore, I expect a long, slow recovery, perhaps one that will never reduce unemployment to the levels that existed in the late 1990’s. I also expect dangerous political reactions. We have them now and the fan has not really been hit yet. But there is still one more reason for pessimism.
There is yet another difficulty on the horizon and that is the money that debtors have collected, including the Chinese. It certainly is not in the interest of the Chinese to express their misgivings over tires or whatever new products the US decides to challenge them on by selling their dollars. Their losses would be astronomical. But things happen and panics occur. The dollar has fallen enormously since spring against the Euro. And it’s not doing well against the Yen.
At some point, the declining value of the dollar is going to be a big part of the deteriorating picture. The dollar might simply continue to fall slowly or panic might send it plummeting, like the 1987 crash of the stock market—about 23% in a single session. But one thing for sure, the dollar problem will not disappear. What it may do, however, is put Ben Bernanke,, chairman of the Federal Reserve, between a rock and a hard place. Rising prices because of a weakened dollar and, simultaneously, high levels of unemployment. This is a no win situation. Price controls could be an answer, but Nixon's needless and inappropriate use of them, make them currently unusuable.
Looking at the present as history, the last two or three centuries the first world dominated the third world. It did so by force and conquest. Imperialism was not just a Communist slogan—it was a capitalist reality. But in the late decades of the last century, things began to change, especially in China, its “Communist” dictatorship notwithstanding—the caps because the dictatorship is real but its Communist nature is not.
What I think we are experiencing is a reversal of history, so to speak. The 3rd World, or parts of it, is rising and this rise is at the expense of the 1st world. Just to get a small handle on it, look at the trade balance between the US and China—they export and we import (and they get our dollars)] To me, this suggests, that we are heading south (or downward). It will not be an overnight process, but it has already begun. Just look at our manufacturing. Our best chance to weather the storm is a slim one: We accept that our day in the sun is over and we adjust. We share the reduced production (and reduced goods that we will be able to buy) by having a shorter workweek.
We then have to make the seismic leap implicit in what Stiglitz has been writing about, and find a happiness in increased leisure that outweighs the loss of the value of the goods we are about to go without (or have a little less of). In an utterly sane world, this could happen, since more time to spend with friends and family is an obvious plus. But it will require changes we are not used to and worse, think we should not be obliged to adopt. If only we were less arrogant and more humble—if only!
Tuesday, September 22, 2009
Who are the Republicans?
1. First, there are those who say they are Republicans because they are for fiscal responsibility (and some add are moderate on social issues).
This is theoretically the best reason for being a Republican or voting for them. Except it is totally wrong. The single most irresponsible fiscal action took place in 1981, when Reagan cut taxes, mainly for the well-to-do. It was not done to counter the recession, which was yet to come. (And it did little to counter that recession—it was all left to Volcker who raised interest rates to the skies to stop inflation (17-18% mortgage rates and a prime rate that briefly reached 21½ %. These increases eventually brought inflation down from its double digits to a relatively low level. But because astronomical interest rates—and there seemed to be no alternative—led to double digit unemployment, Volcker was rewarded for his efforts by being fired (that is, not being reappointed)!
Reagan’s tax cut, which was not appropriate as a stimulus, was the single most irresponsible fiscal action of any post-war (WWII) president. Occurring at a time of great inflation--just when you should not be cutting taxes--it quadrupled the national debt from $1 trillion to $4 trillion over the eight Reagan years. The second most irresponsible fiscal act was George W Bush’s tax cut in 2001, originally designed to reduce the fiscal surplus which was being used to reduce our national debt—Bush and Alan Greenspan, for reasons never made clear, agreed we should not be reducing our national debt. Then later, in 2001, Bush argued for his cut as a fiscal stimulus. As a stimulus, it was a failure since far too much went into the pockets of the rich who did not spend it. The result: not only an eradication of our fiscal surplus but a huge increase in our national debt. Republicans are NOT the party of fiscal responsibility and those who say they are voting for them for this reason either are (willfully?) ignorant or they have other hidden reasons.
2. Some are Republicans because they are outright racists, although this is not true of the few Republicans I happen to know. In Bob Herbert’s column, as I write this on 9/19/09, he mentions an aide to a Republican state senator in Tennessee showing dignified portraits of the first 43 presidents, then one of Obama “as a spook, a cartoonish pair of white eyes against a black background.” Or a longtime GOP activist referring to a gorilla, which escaped from a Columbia S.C. zoo, “as one of Michelle Obama’s ancestors.” Or dear old Glenn Beck assuring us that Obama” has a deep-seated hatred for white people.” And so on.
3. Arguments lurking near, explaining why some are Republicans, include those who hate Hispanics or immigrants or Muslims or possibly Jews (help me--add to the list.)
4. Perhaps, a semi-legitimate reason to be a Republican is that Democrats, in general, are for abortion. (But so are many Republicans, including their politicians, or they used to be, until they knew they had to face sectarian primary opponents.) The argument is based on a belief I do not share—that abortion is murder. But, c’mon, abortion is just one issue and probably more people die because of Republican opposition to a reasonable health plan which should outweigh this issue, unless somehow abortion is more immoral, in some way—what other way would that be?—than someone who dies because they can’t get medical treatment. And we won’t go into the millions who have died in Iraq because George W. Bush lied us into that war—the non-existent WMD and the nonexistent ties of Saddam with Osama. Probably, even if you included all those aborted as people murdered, which I strenuously disagree with, a case may exist that Republican rule has lead to more deaths. Voting and being Republican because of abortion seems to me a weak reed.
5. Let’s lump together, then, a lot of other nonsense arguments: Democrats are Socialists. Democrats are Fascists! Democrats are for big cities. Democrats are against gun control. Democrats are too intellectual—they’re favored on campuses. One could go on endlessly, but in short all of these are emotional reasons camouflaging real issues (including the hate issues, under 3)
6. Democrats ARE more pro-labor than Republicans. This is true. But I think what’s more important is that Republicans are pro-big-business, either because they ARE big-business or because people admire the rich for some crazy reason. They think the rich made us into a great nation, even as they now offshore their manufacturing jobs, offshore their incomes to avoid taxes, oppose health and other reforms and treat the needs of the poor and middle class despicably.
7. But related to this, and very important, is the view that government is the problem, as Reagan expressed it, and Democrats always seek to expand it (which they don’t). But while government does dumb things and often is inefficient, often it is ultimately our savior. Without the super-dooper actions of the Fed, we’d be in the 2nd Great Depression. Without the stimulus, we’d also be in the 2nd Great Depression, although it is much weaker than it could have been because Barrack Obama tried too hard to make it bi-partisan, when the numbers of Republicans in national office, who are possibly bi-partisan, mostly or totally live in Maine. And meanwhile ignorance is astounding: “keep the government out of my Medicare”! Or “had Stephen Hawking lived in England he would have died,” (except that’s where he does live)! And everyone wants federal tornado relief and hurricane relief. And big business wants farm supports. And more money is always needed for “defense” and foreign adventures. In fact, I think it an almost iron-cast truism that most people want government for many things, but they just don’t want to pay for it.
A side excursion are the libertarians and Ayn Rand-ists. They think everyone is responsible for his or her own condition, bar none. If you’re poor, it’s your own fault. If you’re rich—even if you inherited it all—you deserve it. If you’re unemployed, it’s also your own fault. (Actually, a few Republican economists literally believe there is no unemployment. What we have is more people just choosing not to work. I’m serious. See, on this, Paul Krugman’s recent article in the New York Times Magazine, September 6, 2009, ”How Did Economists Get It So Wrong?,” criticizing an important wing of macro-economics—it’s an eye opener. Also, check Brad DeLong’s blog—he’s a distinguished Berkeley economist.) I suppose Rand-ists might vote Republican as a lesser evil, but I think Republican religiosity would drive most Rand-ists crazy. Personally, I think they’re crazy to begin with!
8. I guess fervid religious belief deserves a separate number. To the extent that one party is closer to being “creationists,” it’s the Republican Party. At least, it tries to act as though they are more appropriately religious. But who knows? It seems there are an awful lot of them conducting extra-marital affairs (or gay affairs), even as they publicly condemn what they themselves are doing. Whether Republicans are legitimately more religious is, I think, an open question. Of course, to the extent they are, it makes me ever more Democratic. I don’t want to live in a Christianized America and it’s possible, if it ever went that far, I wouldn’t be allowed to stay here. But maybe these are unreasonable fears, but ones you inevitably feel after listening to some of the religious fundamentalists.
9. Perhaps people are (and vote) Republican because they believe in more aggressive foreign policies. If so, it would seem they have learned nothing from Vietnam and Iraq. I believe Obama is pursuing the Afghanistan War with such force out of a fear that if he doesn’t he will be perceived as weak in the foreign policy realm. Whatever the appearances, however, unless there is a significant diminishment of the Afghanistan commitment, what is shaping up is a political catastrophe. But this is hardly a reason to vote Republican, or be one, in that Republicans began the Afghanistan adventure and no doubt McCain or any other Republican president would be doing pretty much what Obama is doing, if not worse.
9. There are, I’m sure, other reasons why people are Republicans, but probably the most important is simply tradition. Born Republican, remain Republican. I have a friend whose mother was Republican but she loved the Democratic governor of Connecticut, Ella Grasso. But love cannot transcend tradition. She simply could not vote for a Democrat.
My spouse’s mother is a moderate and by Arkansas standards not a racist. But she can only vote for (what are often racist) Republicans, since that’s the way she was brought up. I find this sad. I wish thought and logic and knowledge played a larger role in America in general and its politics in particular. But, alas, people do not behave as informed citizens, to employ a phrase often used but seldom realized. In short, many Republicans vote Republican simply because they were brought up that way. (I’m sure the same is true of Democrats, although frankly I think Democratic voters can find many more reasons to justify their Democratic votes than Republicans can find to justify their Republican votes.
********
Personal Addenda: my father voted for Dewey, one of the only Jews I knew of who did so, although his reasons were not clear. (We were lower middle class—I didn’t learn my tennis at the country club, which many of my friends and opponents did!) My mother voted Democratic in general and for Roosevelt in particular, since that was the Jewish thing to do (and to a considerable degree, still is.) I voted for third parties during my radical phase, but finally (influenced by my spouse at the time) held my nose and voted for Carter because I really didn’t want to see Reagan elected. I once voted for someone I now consider a civil liberties menace, Rudy Giuliani, since I thought Dinkins was so incompetent. That was a major mistake—Giuliani is a dangerous man, although as mayor his harm was limited. And besides, Dinkins did one thing that makes him forever a hero in my eyes. He diverted planes from LaGuardia away from the tennis center so that the games during the Open can be played in peace.
This is theoretically the best reason for being a Republican or voting for them. Except it is totally wrong. The single most irresponsible fiscal action took place in 1981, when Reagan cut taxes, mainly for the well-to-do. It was not done to counter the recession, which was yet to come. (And it did little to counter that recession—it was all left to Volcker who raised interest rates to the skies to stop inflation (17-18% mortgage rates and a prime rate that briefly reached 21½ %. These increases eventually brought inflation down from its double digits to a relatively low level. But because astronomical interest rates—and there seemed to be no alternative—led to double digit unemployment, Volcker was rewarded for his efforts by being fired (that is, not being reappointed)!
Reagan’s tax cut, which was not appropriate as a stimulus, was the single most irresponsible fiscal action of any post-war (WWII) president. Occurring at a time of great inflation--just when you should not be cutting taxes--it quadrupled the national debt from $1 trillion to $4 trillion over the eight Reagan years. The second most irresponsible fiscal act was George W Bush’s tax cut in 2001, originally designed to reduce the fiscal surplus which was being used to reduce our national debt—Bush and Alan Greenspan, for reasons never made clear, agreed we should not be reducing our national debt. Then later, in 2001, Bush argued for his cut as a fiscal stimulus. As a stimulus, it was a failure since far too much went into the pockets of the rich who did not spend it. The result: not only an eradication of our fiscal surplus but a huge increase in our national debt. Republicans are NOT the party of fiscal responsibility and those who say they are voting for them for this reason either are (willfully?) ignorant or they have other hidden reasons.
2. Some are Republicans because they are outright racists, although this is not true of the few Republicans I happen to know. In Bob Herbert’s column, as I write this on 9/19/09, he mentions an aide to a Republican state senator in Tennessee showing dignified portraits of the first 43 presidents, then one of Obama “as a spook, a cartoonish pair of white eyes against a black background.” Or a longtime GOP activist referring to a gorilla, which escaped from a Columbia S.C. zoo, “as one of Michelle Obama’s ancestors.” Or dear old Glenn Beck assuring us that Obama” has a deep-seated hatred for white people.” And so on.
3. Arguments lurking near, explaining why some are Republicans, include those who hate Hispanics or immigrants or Muslims or possibly Jews (help me--add to the list.)
4. Perhaps, a semi-legitimate reason to be a Republican is that Democrats, in general, are for abortion. (But so are many Republicans, including their politicians, or they used to be, until they knew they had to face sectarian primary opponents.) The argument is based on a belief I do not share—that abortion is murder. But, c’mon, abortion is just one issue and probably more people die because of Republican opposition to a reasonable health plan which should outweigh this issue, unless somehow abortion is more immoral, in some way—what other way would that be?—than someone who dies because they can’t get medical treatment. And we won’t go into the millions who have died in Iraq because George W. Bush lied us into that war—the non-existent WMD and the nonexistent ties of Saddam with Osama. Probably, even if you included all those aborted as people murdered, which I strenuously disagree with, a case may exist that Republican rule has lead to more deaths. Voting and being Republican because of abortion seems to me a weak reed.
5. Let’s lump together, then, a lot of other nonsense arguments: Democrats are Socialists. Democrats are Fascists! Democrats are for big cities. Democrats are against gun control. Democrats are too intellectual—they’re favored on campuses. One could go on endlessly, but in short all of these are emotional reasons camouflaging real issues (including the hate issues, under 3)
6. Democrats ARE more pro-labor than Republicans. This is true. But I think what’s more important is that Republicans are pro-big-business, either because they ARE big-business or because people admire the rich for some crazy reason. They think the rich made us into a great nation, even as they now offshore their manufacturing jobs, offshore their incomes to avoid taxes, oppose health and other reforms and treat the needs of the poor and middle class despicably.
7. But related to this, and very important, is the view that government is the problem, as Reagan expressed it, and Democrats always seek to expand it (which they don’t). But while government does dumb things and often is inefficient, often it is ultimately our savior. Without the super-dooper actions of the Fed, we’d be in the 2nd Great Depression. Without the stimulus, we’d also be in the 2nd Great Depression, although it is much weaker than it could have been because Barrack Obama tried too hard to make it bi-partisan, when the numbers of Republicans in national office, who are possibly bi-partisan, mostly or totally live in Maine. And meanwhile ignorance is astounding: “keep the government out of my Medicare”! Or “had Stephen Hawking lived in England he would have died,” (except that’s where he does live)! And everyone wants federal tornado relief and hurricane relief. And big business wants farm supports. And more money is always needed for “defense” and foreign adventures. In fact, I think it an almost iron-cast truism that most people want government for many things, but they just don’t want to pay for it.
A side excursion are the libertarians and Ayn Rand-ists. They think everyone is responsible for his or her own condition, bar none. If you’re poor, it’s your own fault. If you’re rich—even if you inherited it all—you deserve it. If you’re unemployed, it’s also your own fault. (Actually, a few Republican economists literally believe there is no unemployment. What we have is more people just choosing not to work. I’m serious. See, on this, Paul Krugman’s recent article in the New York Times Magazine, September 6, 2009, ”How Did Economists Get It So Wrong?,” criticizing an important wing of macro-economics—it’s an eye opener. Also, check Brad DeLong’s blog—he’s a distinguished Berkeley economist.) I suppose Rand-ists might vote Republican as a lesser evil, but I think Republican religiosity would drive most Rand-ists crazy. Personally, I think they’re crazy to begin with!
8. I guess fervid religious belief deserves a separate number. To the extent that one party is closer to being “creationists,” it’s the Republican Party. At least, it tries to act as though they are more appropriately religious. But who knows? It seems there are an awful lot of them conducting extra-marital affairs (or gay affairs), even as they publicly condemn what they themselves are doing. Whether Republicans are legitimately more religious is, I think, an open question. Of course, to the extent they are, it makes me ever more Democratic. I don’t want to live in a Christianized America and it’s possible, if it ever went that far, I wouldn’t be allowed to stay here. But maybe these are unreasonable fears, but ones you inevitably feel after listening to some of the religious fundamentalists.
9. Perhaps people are (and vote) Republican because they believe in more aggressive foreign policies. If so, it would seem they have learned nothing from Vietnam and Iraq. I believe Obama is pursuing the Afghanistan War with such force out of a fear that if he doesn’t he will be perceived as weak in the foreign policy realm. Whatever the appearances, however, unless there is a significant diminishment of the Afghanistan commitment, what is shaping up is a political catastrophe. But this is hardly a reason to vote Republican, or be one, in that Republicans began the Afghanistan adventure and no doubt McCain or any other Republican president would be doing pretty much what Obama is doing, if not worse.
9. There are, I’m sure, other reasons why people are Republicans, but probably the most important is simply tradition. Born Republican, remain Republican. I have a friend whose mother was Republican but she loved the Democratic governor of Connecticut, Ella Grasso. But love cannot transcend tradition. She simply could not vote for a Democrat.
My spouse’s mother is a moderate and by Arkansas standards not a racist. But she can only vote for (what are often racist) Republicans, since that’s the way she was brought up. I find this sad. I wish thought and logic and knowledge played a larger role in America in general and its politics in particular. But, alas, people do not behave as informed citizens, to employ a phrase often used but seldom realized. In short, many Republicans vote Republican simply because they were brought up that way. (I’m sure the same is true of Democrats, although frankly I think Democratic voters can find many more reasons to justify their Democratic votes than Republicans can find to justify their Republican votes.
********
Personal Addenda: my father voted for Dewey, one of the only Jews I knew of who did so, although his reasons were not clear. (We were lower middle class—I didn’t learn my tennis at the country club, which many of my friends and opponents did!) My mother voted Democratic in general and for Roosevelt in particular, since that was the Jewish thing to do (and to a considerable degree, still is.) I voted for third parties during my radical phase, but finally (influenced by my spouse at the time) held my nose and voted for Carter because I really didn’t want to see Reagan elected. I once voted for someone I now consider a civil liberties menace, Rudy Giuliani, since I thought Dinkins was so incompetent. That was a major mistake—Giuliani is a dangerous man, although as mayor his harm was limited. And besides, Dinkins did one thing that makes him forever a hero in my eyes. He diverted planes from LaGuardia away from the tennis center so that the games during the Open can be played in peace.
Lettered Recessions
Of recent there has been fearful talk of an L, a long period of stagnation. The best-known example of this is Japan, which suffered what is known as the “lost decade,” following the collapse of its real estate and stock market bubbles, at the beginning of the ‘90’s. Even 20 years later the Nikkei 225 (the Japanese stock market) is only about 25% of what it was worth at its peak, just as the NASDAQ Composite is only just above 40 % of its 2000 peak.
Perhaps more pertinent in the current discussion is the possibility of a W, a double dip recession, and one does not have in mind the delicious use of that term from another era (a chocolate scoop on top of a vanilla one in a cone). A variety of economists have expressed fears of a double dip, including Martin Feldstein, a Reagan adviser, Martin Regalia of the US Chamber of Commerce and Dr. Doom, Nouriel Roubini, who sees more yellow weeds than green shoots in the current economic situation. Roubini, whose pessimistic forecasts of a few years ago, in 2005-06, were dismissed (and even made fun of) but when almost all came true, he has since been honored as a distinguished economist and forecaster.
Usually, double dippers refer to a recession followed by a short recovery, which peters out, followed by a second recession. A precedent, perhaps, is the short 1980 recession followed by the long and devastating 1981-2 recession. This made for a peculiar shaped W, in which the second downward slope of the W far exceeds the first downward slope. Letters are at best symbolic projections and not to be taken literally.
But a different version of the W is examined, and perhaps feared, by Christina Romer, chairwoman of President Obama’s Council of Economic Advisers and a scholar of the Great Depression. In 1937 we went into what is called a recession within a depression, with unemployment which had fallen, since 1933, from 25% to 14%, rising again to 19%. While perverse fiscal policies were involved—increased taxes on Social Security, for example—the main problem was tighter monetary policy, driven by fear of a potential inflation.
Contemporary anxieties about future inflation have ignited worries that policies will be created that will lead to a repeat of 1937, in spite of very detailed and thoughtful explanations by Fed chairman, Ben Bernanke, as to how inflation can be avoided, if and when it rears its ugly head. But the threat of inflation, and tighter money, may help doom what is desperately needed to reverse permanently the downslide and overcome what many if not most economists foresee—a painfully slow recovery that could last years.
The most visible sign of economic weakness, apart from the near-death experiences we may be seeing of the automobile industry, is the vast amount of unemployment, actually understated by the official rate, as I write, of 9.7%. Using a broader definition, one which includes workers who no longer look for a job because they think there is none to be found as well as huge numbers working part time, who would like to work full time, the unemployment figure is about 17 %.
The implication, as notable Nobelists like Joseph Stiglitz and Paul Krugman have argued, is that we desperately need a second stimulus, a booster shot, as it were. But, unfortunately, the politics makes this unlikely. Perhaps, in time, we can learn from the Alphabet Soup of the 1930’s—and re-create the WPA and CCC. In addition, simple humanitarian reasons (as well as fiscal considerations) beg for an increase in the period the unemployed get unemployment compensation, as well as an increase in the levels, and that we provide low interest loans to states earmarked to employ teachers, librarians, medical personnel, police and fire fighters.
If actions likes this are undertaken, maybe, we can read of a new recession letter, one which encapsulates the positive improvements these measure can create—a “J”—a letter describing a recovery that takes us to new heights and describes a genuine return to prosperity
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